Getting on the London property ladder might seem like a pipe dream, but some decent planning will put you well on your way to owning a home in the capital.
1. Decide how much you need to save
Spend some time researching property prices in the areas you’re interested in to get an idea of how much you’d need to save.
Keep in mind that the minimum amount required as a deposit is 5% of the property value, although a 10% deposit will secure a better deal as it represents less of a risk to the lender. Data released in 2013 shows the average house price in the UK to be around £170,000, which would equate to a minimum deposit of £8,500 and a 10% deposit of £17,000. Add to that stamp duty fees, moving costs and other legal fees, and you’re looking at a more realistic goal amount. Also make sure that the mortgage repayments are payable on your current salary.
2. Pay off your debts
Once you’ve decided to start saving towards a deposit, the first step is to pay off your debts. If you have a credit card, consider paying it off as soon as possible. The high interest you pay on a credit card effectively cancels out any interest you may be earning in your savings accounts or through your investments. Rather put as much money as possible into paying off your debts as quickly as you can, so that you can start truly saving and earning interest.
3. Start saving early
Start by investigating the different accounts offered by the various banks and find one that offers rewards, high interest and flexibility – in other words, ensure your bank account(s) make it easy to truly save money.
- Set up a monthly debit order on your savings account
If you find it difficult to save, consider a standing order that automatically adds your chosen amount to your savings account every month. Because you’re not physically moving the money yourself, it will hopefully disappear from your mind as soon as it leaves your current account. Your savings will start adding up before you know it.
- Use account sweeping or “save your change” accounts
Some banks and accounts offer an automated sweep facility that “sweeps” spare cash straight into your savings account on a specific date. Others “bank your change” whenever you use your debit card – the amount spent is rounded up to the nearest pound, and the difference is sent straight to your savings account. This adds up quickly and you won’t even feel it.
- Brainstorm other ways to add to your savings
For instance, when you receive your tax refund money, put it straight into your savings. Look around your house and sell things that you’re no longer using. You may think you’ll start using the home gym soon, but if you haven’t used it in a year, sell it and put the money towards your home deposit.
4. Speak to a financial planner
A good financial planner will advise you on technical issues like property ownership structure, debt level, and how the purchase will affect the rest of your financial position. This info is seldom available at banks and traditional lenders, who have a habit of answering “yes” to first-time buyers for fear of frightening them off. This advice comes at a cost – poor purchase decisions and unnecessary long-term costs. A good adviser should offer you advice and brokerage, encouraging you to ask questions – as many as possible.
Sable Mortgages is recognised as one of the leading foreign national and contractor mortgage specialists in London. The company offers financial planning and brokerage, meaning you get a mortgage that’s tailored to your circumstances – every time.